Commodity Futures Trading Com'n v. Ibs, Inc.

• Decision Date: 20 June 2000
• Docket Number: No. Civ. 3:00CV103-V.,Civ. 3:00CV103-V.
• Court: U.S. District Court — Western District of North Carolina
• Parties: COMMODITY FUTURES TRADING COMMISSION, Plaintiff, v. IBS, INC. (A North Carolina Corp.), et al., Defendants, International Bullion Services (Bahamas), Inc. (A Bahamas Corp.), et al., Relief Defendants.

113 F.Supp.2d 830

COMMODITY FUTURES TRADING COMMISSION, Plaintiff, v. IBS, INC. (A North Carolina Corp.), et al., Defendants International Bullion Services (Bahamas), Inc. (A Bahamas Corp.), et al., Relief Defendants.

No. Civ. 3:00CV103-V.

United States District Court, W.D. North Carolina, Charlotte Division.

June 20, 2000.

COPYRIGHT MATERIAL OMITTED

Daniel R. Salsburg, Joseph Konizeski Lawrence H. Norton, Commodity Futures Trading Comm'n, Div. of Enforcement, Washington, DC, Jodi Siff, Commodity Futures Trading Comm'n, Washington, DC, for Plaintiff.

Lawrence W. Hewitt, James, McElroy & Diehl, Charlotte, NC, for Defendnat Alan Stein.

Alan Stein, Charlotte, NC, pro se.

David C. Keesler, Moore & Van Allen, Charlotte, NC, for Defendant Joseph Finateri.

Joseph Finateri, Fort Mill, SC, pro se.

Michael Temple, Charlotte, NC, pro se.

R. Lawrence Bonner, Homer, Bonner & Delgado, P.A., Miami, FL, for Defendants Kimberlynn Creek Ranch, Inc., Kingsfield Racing, Inc., Samuel Kingsfield, Pamela Kingsfield.

MEMORANDUM & ORDER

VOORHEES, District Judge.

THIS MATTER is before the Court on the following motions:

(1) The Commodity Futures Trading Commission's motion for a preliminary injunction (doc. 4);

(2) Defendants Joseph Finateri and Alan Stein's Motion to Dismiss or in the Alternative Motion for Summary Judgment (doc. 36); and

(3) Relief Defendants Kimberlynn Creek Ranch, Inc., Kingsfield Racing, Inc., Samuel Kingsfield and Pamela Kingsfield's Motion to Vacate Ex-Parte Statutory Restraining Order, which incorporates said Relief Defendants' motion to dismiss for lack of subject matter jurisdiction and motion to dismiss for lack of personal jurisdiction, and said Relief Defendants' Answer, which re-states the above-referenced motions. (Docs. 57 & 75).

I. PROCEDURAL HISTORY

On March 13, 2000, the Commodity Futures Trading Commission ("the Commission") filed a Complaint seeking permanent injunctive and other relief and an ex parte motion for a statutory/temporary restraining order. The Commission's Complaint alleges that certain business entities and persons have violated the Commodity Exchange Act by fraudulently telemarketing illegal futures contracts for precious metals and other commodities from offices located in North Carolina and elsewhere. (Compl. at ¶ 1). In Count One, the Commission alleges that Defendants' practices include "a wide range of misrepresentations and omissions concerning facts that are material to the investment decisions of customers and potential customers in violation of Section 4(b) of the Act, 7 U.S.C. § 6(b)." (Id. at ¶¶ 57-60). Count Two alleges that Defendants offered and dealt in illegal contracts for the purchase or sale of a commodity for future delivery, such transactions having been conducted off a board of trade and not through a member of a designated contract market, in violation of Section 4(a) of the Act, 7 U.S.C. § 6(a). (Id. at ¶¶ 61-65). Count Three seeks the disgorgement of funds and assets that are held by the named Relief Defendants and are traceable to Defendants' fraud. (Id. at ¶¶ 66-71).

On March 13, 2000, the Court granted the Commission's Emergency Ex Parte Motion for a Statutory Restraining Order on the basis of the supporting affidavits and documents filed therewith. The Court's Statutory Restraining Order, issued on an ex parte basis in compliance with the exception noted within 7 U.S.C. § 13a-1(a), prohibited the Defendants from destroying, altering, or disposing of all books, records, documents, and accounts related to the alleged illegal activity. Consistent with the requirements of § 13a-1(a), the Order appointed a temporary receiver to administer the restraining order and perform certain duties vital to such role as outlined fully therein.

Upon an agreement reached between the Commission and the previous counsel for Defendants Stein, Finateri, and Temple, the show cause hearing on the preliminary injunction was delayed until April 7, 2000. At that time, the matter was continued on the joint motion of Defendants and re-set for April 19, 2000. At the hearing on April 19, the Court denied Defendants' Motion to Stay All Proceedings pending the resolution of a potential criminal investigation in the matter. Thereafter, the Court received into evidence the exhibits and affidavits filed previously by the Commission, consisting of three volumes filed March 13, 2000, and the Affidavit of Mary Kaminski, filed April 5, 2000. In opposition to the preliminary injunction motion, Defendant Finateri testified on his own behalf. Due to time limitations, the hearing was continued until April 26, 2000. At that time, Defendant Finateri concluded his presentation of evidence, submitting an affidavit from an investor named David Schwanke and, over an objection by the Commission, an unsworn statement by an investor named Bernard Brauns. Defendant Stein chose not to offer any evidence in opposition to the Commission's motion.

At the April 26, 2000 hearings, attorney Lawrence Bonner entered what he termed was a "special appearance" on behalf of his clients, Samuel and Pamela Kingsfield. Kimberlynn Creek Ranch, and Kingsfield Racing. As of the date of the hearings, these Relief Defendants had not been served with process and were not parties to the case. Upon inquiry by the Court of the Commission's attempts to effect service of process on the Kingsfields, Jodi Siff, lead attorney for the Commission, informed the Court that attempts were being made to locate and contact the Kingsfields, but that their exact whereabouts were unknown. Mr. Bonner represented to the Court that he had not been authorized by his clients to accept service of process on their behalf, but that he would attempt to communicate with them to facilitate them being brought into the case as soon as possible so that they could protect their interests. The Court specifically advised Mr. Bonner that it was not aware of the precise distinction between a special and general appearance and advised Mr. Bonner that he could participate in the hearings if he wished, but that so doing might effect a waiver of personal service of process. At the conclusion of the evidence as to the motion for preliminary injunctions against the Defendants, Mr. Bonner addressed the Court at length, arguing in support of Defendants Finateri and Stein's motion to dismiss for a lack of subject matter jurisdiction.

On May 3, 2000, Mr. Bonner filed a Notice of Appearance on behalf of Relief Defendants Samuel and Pamela Kingsfield, Kimberlynn Creek Ranch, and Kingsfield Racing. These Relief Defendants also filed a Waiver of Service and a motion to vacate the Statutory Restraining Order on that date. The hearing on the Commission's motion for a preliminary injunction as to the Relief Defendants and the Relief Defendants' motion to vacate was held on May 12, 2000 in the Charlotte Division.

On May 8, 2000, Defendants Stein and Finateri requested additional time to submit documentary evidence in this matter based on the difficulty of obtaining copies of their records from the FBI. This request was granted and Defendants filed additional documentary evidence on May 25, 2000. The Commission responded on June 2, 2000.

II. FACTUAL FINDINGS

On September 1, 1991, Defendant Joe Miller Company, Inc., filed a Fictitious Business Name Statement with the State of California to do business as IMC Trading, Inc ("IMC-CA"). (CFTC Exh. 104 at 6). The statement identifies Defendant Joseph Finateri as the company's president and designates Richard Stambul as the registered agent for service. (Id.; Pl. Exh. 119 at 2). IMC-CA operated in California for approximately three years, during which time it sold highly-leveraged investments in precious metals through its telemarketing operations. (Pl.Exh. 104 at 60, 73). In April 1995, Richard Stambul incorporated IMC Trading, Inc. to do business in the State of Nevada ("IMC-NV") with Joe Finateri designated as the sole director of the company. (Pl.Exh. 115 at 1). IMC-NV operated in Nevada for approximately three-and-a-half years, offering highly-leveraged precious metals contracts through its telemarketing operations. (Pl.Exh. 101 at ¶ 9, Pl.Exh. 102). In October 1998, John Nelson of the Securities Division of the Office of the Secretary of State for the State of Nevada began investigating a complaint the Division received concerning the business practices of IMC-NV. (Pl.Exh. 102 at ¶ 4). Through his investigation, Nelson determined that IMC-NV was not registered with either the National Futures Association or the State of Nevada to sell commodities. (Id. at ¶¶ 5-8). Nelson's investigation of IMC-NV eventually led to the entry of a non-consensual Permanent Order to Cease and Desist on December 17, 1998 to prevent IMC-NV from doing further business in Nevada. (Id. at ¶¶ 9-16).

In the late-summer or early-fall of 1998, IMC Trading, Inc. began operating out of offices in Arizona ("IMC-AZ"). (Pl.Exh. 111 at 26; Pl.Exh. 116). A Profit Certificate of Disclosure was filed with the Arizona Corporation Commission by Richard Stambul on behalf of IMC-AZ (Id.). On September 10, 1998, IMC Trading, Inc. was incorporated in the State of North Carolina ("IMC-NC") by Richard Stambul, (Pl.Exh. 112 at 1), and on April 8, 1999. Richard Stambul incorporated IBS, Inc. in North Carolina ("IBS-NC"). (Pl. Exh. 113 at 1). IBS-NC shares office space with Pinpoint Marketing, Ltd., a Florida corporation operated by the Mazuma Trading Group, Inc. (Pl.Exh. 101 at ¶¶ 11, 14, 20).

IMC-NC, IBS-NC, IMC-NV, and IMC-AZ have all been incorporated by Richard Stambul and Stambul served as the registered agent for IMC-CA. (Pl. Exh. 113 at 3; Pl.Exh. 115; Pl.Exh. 116 at 1; Pl.Exh. 119 at 2). Finateri is the sole officer of IMC-NV and IMC-CA and an officer of IMC-AZ. (Pl.Exh. 115; Pl.Exh. 119 at 2; Pl.Exh. 116 at 3). Stein is an officer of IMC-AZ and purports to be Controller of IMC-CA and IMC-NV. (Pl. Exh. 116 at 3; Pl.Exh. 102 at 34, 38; Pl.Exh....